The Bank said mortgage approvals fell to 44,192 last month, down from 50,544 in May, the lowest reading since December 2010 and well below analysts' forecasts of a reading of 49,000. Net mortgage lending also slipped, shrinking by £355m, which was the sharpest drop since December 2010.

That mirrors a general weakness in the economy, with figures last week showing that economic output in the second quarter of 2010 suffered its biggest fall since early 2009, contracting by 0.7pc. One-off effects compounded the misery faced by an economy already mired in recession and hurt by the eurozone debt crisis and public spending cuts.

While mortgage lending contracted, consumer lending held up relatively well. Consumer credit rose by £635m in June, slightly more than the £400m rise economists had forecast, but that did not stop overall lending showing its weakest growth since July 2010.

The rate of credit growth is well below the pace seen before the financial crisis and the Bank of England and the government have announced a slew of measures in recent weeks to encourage banks to lend more cheaply.

Commenting on the figures, Victoria Clarke of Investec said: "This is a sharp drop in activity levels. The figures seem to have been hampered by weather and the Jubilee, which the Bank of England said they haven't adjusted for, but even so the readings are pretty gloomy and fit with the broader run of weak economic data and subdued data from the housing markets."

"We're back to pre-crisis levels. They're indicative really of households still being nervous, and credit lines still being tight. Any kind of recovery is still being put off," she added.

In a separate report, the Bank of England said M4 money supply fell 1.6pc in June from the previous month and was down 5.2pc from a year earlier. The annual drop was the biggest since records began in 1964.